Alcatel-Lucent (ALU) and Nokia Confirm Merger Talks

Shares of Alcatel-Lucent S.A. (ALU) were trading up +0.27 or +6.21 percent to $4.62 per share in Tuesday's premarket after both Alcatel-Lucent and Nokia (NOK) confirmed that the companies were in advance talks for the takeover of Alcatel by Nokia. Alcatel-Lucent stock closed at $4.35, up +0.31 or +7.67 percent in Monday's regular trading session.

Boulogne-Billancourt, France based Alcatel-Lucent S.A.

is a global telecommunications and networking hardware company specializing in IP technologies, fixed and mobile telephony, software and services. The company operates in more than 130 countries and employs over 52,000 people worldwide. Alcatel-Lucent has had eight consecutive years of negative cash flow. In 2013, the company initiated a three year "Shift Plan to focus on cloud development, ultra-broadband access and IP networking with the goal of saving 1 billion. Alcatel-Lucent is the owner of Bell Laboratories, which holds more than 29,000 patents related to the communications industry. Bell Labs employees have been awarded eight Nobel Prizes.

Espoo, Finland based Nokia Corp. is a multinational corporation providing wireless network equipment and Internet services which include applications, games, media, music and messaging services. The company was formally the world's second largest smartphone maker after Ericsson until the handset division was sold to Microsoft in September of 2013 for $7.2 billion. Nokia employs approximately 61,000 people and had sales of 12.7 billion in 2014.

The deal, which has not yet been solidified would be Nokia's largest acquisition to date and could value Alcatel-Lucent by as much as $13 billion. Alcatel-Lucent had a valuation of approximately $11.6 billion after the stock's closing price yesterday. Nokia's market cap is about $28 billion.

In a statement released by Nokia early this morning, the company stated that, "In relation to recent media speculation Nokia and Alcatel-Lucent confirm that they are in advanced discussions with respect to a potential full combination, which would take the form of a public exchange offer by Nokia for Alcatel-Lucent. There can be no certainty at this stage that these discussions will result in any agreement or transaction. Neither company wished to comment on the matter beyond the statement.

Nokia has recently been in talks with other firms interested in acquiring the company's mapping division, called "Here , which is a direct competitor to Google Maps. The sale of the unit would give the company a significant cash infusion which could be used for the Alcatel acquisition.

While neither party has commented on the possible merger, the deal could be blocked by the French government, which has long considered Alcatel-Lucent and its predecessor Alcatel as the leading company in the French telecom sector. The French government has traditionally been against foreign control of French companies, having previously blocked Yahoo's (YHOO) bid to acquire video website Dailymotion and General Electric's (GE) offer to buy Alstom.

Investors are proceeding cautiously; with Alcatel-Lucent stock up almost seven percent in this morning's premarket, while Nokia shares are trading down more than four percent. Traders will be looking to any further announcement by both companies for indications on a cash bid price from Nokia and/or other terms such as a combination of stock and cash.

Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.